RETAIL FIRST LOOK: 9/26/09

RETAIL FIRST LOOK

AUGUST 26, 2009

TODAY'S CALL OUT

Despite outside appearances, Staples believes this year’s promotional level for the back to school season is consistent with last year. Sales are off to a good start for the season. Within the quarter PC sales had a strong showing with comps up mid single digits, driven by strength in laptops and notebooks. Overall, same store sales trends in the North American market have now improved sequentially for the third quarter in a row.

It might be “too little, too late” for Borders as the company re-merchandises its stores by substantially shrinking its multimedia department while increasing the focus on children’s. As a result of inventory clearance, declining secular trends, and poor competitive positioning, Borders’ music/dvd same store sales declined by 50% in the quarter. The category overall accounts for roughly 8% of total sales vs. a 23% peak in 2002. Despite all the changes underway, Borders continues to lose market share, which same store declines in the quarter of 13% vs. Barnes & Noble which posted a 6.9% decrease over the same period.

As Winn Dixie continues to execute a corporate turnaround, it recently relaunched the Jacksonville market with the completion of 51 remodels. In response to the massive market upgrade, Publix responded immediately with a zoned circular program focused specifically on the trade area. The competitive response, while not overly aggressive on price or breadth, is clear acknowledgement that Publix isn’t going to sit back and watch WINN regain share easily. Expect more competitive response from Florida as Winn remodels additional districts against what is already one of the most challenging state economies in the country.

In a sign that new management is comfortable with the merchandising changes underway at Chico’s, the company returned to television advertising for the first time since August 2006. The ad campaign will run through October during programming oriented towards women viewers. Coinciding with the return to TV, was the reporting of the company’s first positive same store sales result in 11 straight quarters. Momentum has carried into August and the company expects to report another quarter of positive same store sales trends in 3Q.

Rather than wait for lease expirations, Casual Male is taking their efforts to reduce rents on offense. The company is attempting to renegotiate every one of its 487 leases. Approximately 100 stores per year are expected to come up for renewal based on the normal course of business.

One of the key beneficiaries of the weakness in the video game industry is close-out retailer, Big Lots. After testing video game sales in 25-30 stores, the company is expected to rollout the category to the entire chain by the middle of September. The company noted there is great value being offered by the studios and gaming manufacturers in an effort to clean up inventories. The pet category also remains a key area of focus for BIG, with double digit same store sales increases in the category.

Concerns over a potential surge in cotton prices due to the same drought conditions that drove sugar prices up 20% in the first 8 days of August have subsided. Sugar prices are now flattening and cotton is 11% off its highs over the last 8 sessions. This is positive for both Hanesbrands and even more so for Gildan (cotton is roughly 30% of COGS).

MORNING NEWS

-Neil Cole, chairman, president and chief executive officer of Iconix Brand Group Inc., oversees a company that owns and manages 19 brands — from Badgley Mischka and London Fog to OP, Rocawear and Candie’s, all of which are known for their provocative marketing campaigns. “You’ve got to do something exciting and innovative and touch consumers’ sensibilities to get share of mind,” said the ceo, the brother of designer Kenneth Cole. Overall, the brands include over 200 fashion licenses and 15 direct-to-retail licenses and represent over $8 billion in annual retail sales. When asked ifIconix is hunting for more acquisitions Neil Cole replied "Definitely. That is part of our growth strategy. We were just named one of Fortune Magazine’s 100 fastest-growing companies and a lot of that comes with acquisitions: Today we have 19 brands, our goal is to own 50 over the next three to five years, and it’s going to come through acquisitions. As a public company we can’t talk specifics, but we’re now engaged with five different iconic brands we feel would be wonderful additions." When asked about the role of social media in Iconix's marketing and advertising Neil Cole replied, "In our youth brands, it is huge now, and a critical component in every campaign. We use it today in every one of our brands. We work with Facebook, Twitter and many different blogs and ways of connecting to consumers wherever they are. We have young people in marketing who understand how to get the word out without spending a lot of money. We’re launching campaigns through social networks where we hit millions and millions of people before we spend a nickel on traditional media." <wwd.com/business-news>

-The Finish Line on Tuesday announced the creation of a new e-commerce division- The Finish Line on Tuesday announced the creation of a new e-commerce division and appointed former chief information officer and EVP of information systems and distribution Donald Courtney as president of the group. The new division brings together the e-commerce advertising, design and content team, which had been divided between the marketing and information systems departments. It will focus solely on content, sales and the customer experience at Finishline.com. Courtney will report directly to CEO Glenn Lyon. <wwd.com/footwear-news>

-As they trudge through the back-to-school season, retailers don’t see much of a break for holiday - The latest predictions call for holiday same-store sales to be flat to down in the low single digits compared with a year ago. On the upside, profit margins are expected to be better, due to conservative buying, possible pent-up demand and lower prices to project an aura of greater value and dodge the markdown mania of a year ago. Stores will benefit from easy comparisons with last year’s depressed season, and an extra day for shopping between Thanksgiving and Christmas — 28 this year, versus 27 in 2008. “It’s going to be a tough season,” said Lisa Schultz, executive vice president of apparel design at Sears Holdings Corp. Apparel, apart from denim, cashmere and festive styles, is expected to be less of a factor than ever as demand increasingly skews toward small electronics, such as the Kindle, and giftables. Previews of the upcoming holiday merchandise indicate a wider array of items at stores’ lowest or “opening” price points and more exclusives either through private label products or working with suppliers. Also high on the merchandising agenda are: Giftables, such as candles, picture frames, soaps, chocolates and tree ornaments, which will usurp some space traditionally devoted to more expensive products like apparel and outerwear. Cashmere, which seems to grow each year as a percentage of the offering, as well as skinny jeans, embellished jeans and pet apparel and accessories. While retailers are better prepared than last year, executives recognize there is still immense economic uncertainty that could keep consumers out of stores and throw even their ultraconservative projections out the window. <wwd.com/business-news>

-Esprit Profit Falls 26% on Europe Recessions, Missing Analyst Estimates - Esprit Holdings Ltd., the biggest clothing retailer listed in Hong Kong, said full-year profit fell 26%, the first decline in more than a decade, after its biggest markets in Europe fell into recession. The clothier’s profit growth may resume as Germany and France haul Europe out of its worst economic slump since World War II, unexpectedly returning to growth in the second quarter. Esprit, which makes more than four-fifths of revenue in Europe selling products from jeans and sunglasses to towels and bed sheets, suffered as the euro-region economy slid into recession. The company expects to see earnings improve the first quarter next year as economies recover. <bloomberg.com>

-Belle Profit Climbs 15% on China Shoe Sales, Beating Analysts' Estimates - Belle International Holdings Ltd., China’s largest retailer of women’s shoes, said first-half profit rose 15%, beating analyst estimates, after it boosted promotions to raise footwear sales. The shoemaker, whose brands include Staccato and Joy & Peace, continued to open stores and focused more its footwear business, which has higher margins. Belle this month agreed to sell its Fila sports brand business in China, Hong Kong and Macau to Anta Sports Products Ltd. for as much as HK$600 million ($77 million). <bloomberg.com>

-Westfield Says Property Values Have Bottomed After Writedowns Prompt Loss - Westfield Group, the world’s largest owner of shopping centers, said property values in the U.S., U.K, Australia and New Zealand markets have reached their low and the company doesn’t need to sell shares to raise capital. <bloomberg.com>

-Target, Digital Fusion team up for ad play - MTV Networks’ Digital Fusion has partnered with Target to unveil a potentially high-impact ad treatment for online video called The Scrubber, which -- at least in this case -- incorporates Target’s colors and logo into a video player. The two companies have presented a demo of The Scrubber using a video clip from the site NickJr.com. The "Scrubber" name appears to refer to the way Target’s messaging and brand imagery envelope the player itself, as well as any corresponding ad units. For example, during a short clip featuring a craft project for kids, Target branding takes over the bottom of the video screen, as the company’s recognizable bull's-eye logo actually serves as the video’s playback timer -- moving from left to right through the duration of the clip. Also, as the video streams, the Target bull's-eye interacts with several branded icons placed within the bottom border of the player, triggering various overlay ads to appear on the screen touting different, theoretically timely offers. In addition to the iconography, Target also runs a brief pre-roll ad message prior to the clip as part its Scrubber treatment. Plus, the retailer’s logo is seen persistently in the lower right hand corner of the player. <brandweek.com>

-Sears builds home improvement site - After two years of beta testing, Sears Holdings Corp. has finally switched on ManageMyHome.com, a site designed to help consumers with home improvement projects. The site went live Tuesday, and Sears Holdings—which owns Land’s End, Kmart and Sears—is positioning it as a one-stop online destination for home-related projects. This will also serve as Sears' main selling point to differentiate ManageMyHome.com from other home improvement portals, said Jim Hilt, vp of divisional holdings for Sears. He argued that while many do-it-yourself sites already exist, only a few actually give homeowners the motivation and resources to succeed. “It’s not just about giving [homeowners] another place to store information or keep track of stuff, but . . . to help them actually do it,” Hilt said. Sears Holdings is relying on word-of-mouth, social media and home enthusiast blogs to build buzz. Likewise, the company is driving traffic to ManageMyHome.com via e-mails to customers who’ve made a significant home furnishings or equipment purchase. <brandweek.com>

-Survey and analyst agree: Old Navy leads in back-to-school retail sites - A new study by the National Retail Federation and an industry expert both rank Old Navy as one of the best back-to-school retail web sites. <internetretailer.com>

-Ike Behar is rounding out its offering for the dressed-up man with its first license for outerwear, which will hit stores for fall 201 - The deal partners the family-owned dress shirt maker with a new entity, Harbour International, a company formed by one of the owners of the leather coat resource Boston Harbour LLC, and an investment group from China. “In the last six months, Ike Behar has worked to become the premier American dresswear brand,” said Behar president Alan Behar. “Since my father started making shirts, we have added neckwear, small leather goods, cuff links and, most recently, tailored clothing. It made perfect sense to complete the story with a range of dressy outerwear.” The Ike Behar outerwear business will be headed by coat veteran Carlo Quintiliani, who joined Harbour International from Stuarts Leathers. He said retailers can expect a 20-piece collection of suit-friendly coats and jackets with modern, sophisticated styling. The coats, all 38 inches in length or shorter, will come in cashmere, luxury wools, leathers and technical materials, and will be sold at better specialty stores. “These will be coats for the guy with the corner office who wants confidence, fashion and elegance in his clothes,” Quintiliani explained. <wwd.com/business-news>

-A new concept at the newest Bass Pro Shops takes bowling pin target shooting to a whole new level - The new Bass Pro Shops store in Altoona, IA features a 15,000 square foot bowling center. The nautically themed Uncle Buck’s Fish Bowl and Grill was an extensive joint effort between Brunswick and Bass Pro Shops to create the first-ever in-store bowling center. This new 15,000 square-foot bowling center features 12 custom-designed lanes divided into two 6- lane areas, billiards room with a fireplace, two tournament pool tables and a casual family dining area for up to 150 people. An island-themed bar features an elevated 750-gallon saltwater aquarium of exotic fish. Bowlers will walk up to a wooden ship to rent shoes and reserve lanes, while surrounded by hand-painted wall murals of ocean life along with fish mounts suspended from the ceiling. <sportsonesource.com>

-Miley Cyrus' upcoming CD "The Time of Our Lives" will release Aug. 31 only at Walmart stores and its online site - The latest release from the "Hannah Montana" star will feature seven tracks, including her new single "Party in the USA." The CD, which will retail for $8, is currently available for preorder at Walmart.com. A digital album version is also available for $7. Earlier this month, Walmart rolled out its new Miley Cyrus & Max Azria clothing line, offering tops, pants, graphic tees, shoes and accessories. Everything in the collection retails for less than $20. The fourth season of Disney's "Hannah Montana" will begin production in 2010. <licensemag.com>

-Country music star Kenny Chesney plans to roll out his first apparel line at an invitation-only concert next week, coinciding with MAGIC - Chesney's Blue Chair Bay clothing label will feature T-shirts, shorts, khakis, button-down shirts and hats. The line will retail from $35 to $72. "MAGIC is the biggest show in the world for this sort of the thing and I love the idea that these clothes are out there for the buyers to get to see them," says Chesney. "The clothes are casual, comfortable and easy to wear wherever you're headed... and that was the whole point. Whatever you've got to do, something in this line will work." <licensemag.com>

-Peru has decided not to impose any safeguard duties on Indian cotton yarn imports - Peru has decided not to impose any safeguard duties on Indian cotton yarn imports, an effort made by the Cotton Textiles Export Promotion Council (Texprocil) and the diplomacy by Indian Embassy in Peru. Exports of Cotton yarn from India reached US$ 94.45 million during 2008, representing a growth of 73.62%. Due to the safeguard investigations, imports of Cotton yarn from India during the first six months of 2009 recorded a sharp decline of 54.25% to US$ 24.79 million. In face of a downturn faced by Cotton yarn factories in Peru represented by Sociedad Nacional de Industrias, a complaint was filed to National Institute of Defense of Competition and Protection to the Intellectual Property claiming that rising imports of Cotton yarn are causing threat to the domestic Cotton yarn producers in Peru and requested imposition of safeguard duties on imports of Cotton yarn from all countries including India. <fashionnetasia.com>

-South African clothing manufacturers and companies are going to meet up with union leaders this week to try to prevent a strike - South African clothing manufacturers and companies are going to meet up with union leaders this week to try to prevent a strike of 60,000 workers due to wage disputes. Under annual wage negotiations, the Southern African Clothing and Textile Workers Union has been asking for income to rise by 7.9%, compared to the 5% offered by employers. If the talks on Wednesday (Aug 26th) fail to strike a deal, the union will ballot its members on the possibility of industrial action. <fashionnetasia.com>

-Fast-fashion specialty retailers have outperformed department stores a study says - Fast-fashion specialty retailers “with exceptional speed-to-market” have outperformed department stores and less nimble specialty stores not only in their profit margins, but also in their pace of revenue growth, according to a study by The Sage Group LLC’s Apparel and Retail Group. Surveying results from 47 retailers, all of them publicly held and the overwhelming majority of them based in the U.S., Sage found in the last 12 months, the five stores with the best EBITDA margin — earnings before interest, taxes, depreciation and amortization as a percentage of sales — were Hennes & Mauritz, at 23.4%; The Buckle Inc., at 22.5%; Zara operator Industria de Diseno Textil SA (Inditex), at 20.3%; Urban Outfitters Inc., at 19.8%, and Fast Retailing Co. Ltd., owners of Uniqlo, at 18.6%. Other specialty retailers — such as Gymboree, Jos. A. Bank Clothiers Inc., Aéropostale Inc., Gap Inc. and American Eagle Outfitters Inc. — filled out the top 10 rankings with marks ranging from 18% down to 13.9%, but Kohl’s Corp. distinguished itself as the best broadlines retailer with an 11th-place finish at 12.6%. Abercrombie & Fitch Co. (11.7%) and Limited Brands Inc. (11.6%) followed, before the first upscale department store appeared on the list, Nordstrom, whose 11.4% mark placed it at 15th. “On a market-cap weighted basis, stock prices for the fast-fashion subset have gained 17.3 percent over the past year, trading at 11.3 times [EBITDA for the last 12 months], on average,” Sage noted. By comparison, the department stores cited in the study — Macy’s, J.C. Penney Co. Inc., Nordstrom and Dillard’s — had seen their stock prices decline 17.8 percent over the last year and were trading at an EBITDA multiple of 7.9 times. <wwd.com/business-news>

RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): AMZN

08/21/2009 10:38 AM

SELLING AMZN $84.88

I've been looking for an out in this position, and what else can I say - I'm out. Selling green. KM

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